The Roth Case
Your clients, Ira and Flora Roth, have come to you for some basis tax planning advice and guidance. Here are the facts you need to help them.
• Ira’s earned income: $65,000
• Flora’s earned income: $52,000
• They live in Kansas and own a municipal bond issued by the city of Wichita (not a private activity bond). The bond’s face value is $100,000 and it has a 3.5% coupon
• Ira paid $12,000 in a alimony for the year to former spouse
• During the year they had a the following transactions
o Sold XXP stock for $11,000; originally purchased many years ago for $5,000
o Purchased 100 shares of HHP stock for $3,000 in April of the year
o Sold KSU corporate bond originally purchased on February 6 of the year for $15,000 (basis); they received $11,000 for the bond on November 12,
o Redeemed $4,300 worth of EE savings bonds in July that they had held for 12 years; the bonds earned 6% interest and had doubled in value
o Sold 1,000 shares of UNR stock at $7 per share that they had purchased earlier in the year for $13 per share.
* Flora age 61 received annuity distributions of $22,000 from a nonqualified annuity. T the beginning for the year, the annuity had a value of $300,000 and an after tax basis of $100,000. Her remaining life expectancy is 13.64 years
• Ira age 57 terminated employment and took a distribution of $199,99 from his 401K plan with the intent of rolling the money over to a Fidelity IRA in 30 to 45 days. His remaining life expectancy is 14.80 years.
• Ira and Flora paid $3,000 in housing expenses for their grandchild Chuck as a way to help offset some of his college expenses. They paid the $3,000 directly to Chuck.
• During the year, they paid the following items:
o $12,600 in unreimbursed medical expenses.
o $7,000 in mortgage interest
o $3,500 in property taxes
o $3,000 in state income taxes
o $2,800 in state and local sales taxes
o $1,000 to the salvation Army
o $2,400 to their church
o $750 to Kansas State University
o $500 in legal fees
o $100 in safe deposit box fees
• They contributed $3,200 to a Section 529 plan to help pay for Chuck’s college expenses
#1) How much in long term capital gains did the Roths have for the year
#2) Which of the following statement is true?
a) The Roths had $1,000 in short term losses for the year
b) The Roths had $4,000 in short term losses for the year
c) The Roths had $10,000 in short term looses for the year
d) The ROths had $15,000 in short term losses for the year
#3) How much (rounded) of Flora’s annuity distribution in taxable this year?
#4) Which of the following statements is true?
a) Ira’s employer will withhold $20,000 in federal taxes from the 401K distribution
b) Ira will owe an immediate 10% penalty on the 401K distribution
c) Ira will need to contribute only $80,000 to IRA rollover to avoid penalties
d) Ira needed to roll over the money to the IRA within 30 days to avoid taxes and penalties
#5) Had the Roths decided to give the XXP stock to a charity, they should have
I. sold the stock first and then made the donation for a deduction
II. donated the stock first and then taken he deduction
III. donated cash to the charity then sold the stock
a) I only
b) II only
c) III only
d) I,II, or III because they result in the same tax outcome
#6) Assuming they had decided to donate the KSU bond to a charity, they should have
I. Sold the bond first and then made the donation for a deduction
II. Donated the bond first and then taken the deduction
III. Donated the bond first and then deducted the loss
a) I only
b) II only
c) III only
d) I, II, III because they result in the same tax outcome
#7) How much can the Roths deduct from their federal taxes for the ss 529 plan contribution?
#8) In addition to the information already known about the Roths, you learn that Flora owns a vacant lot in Topeka that she purchased as an investment. She would like to exchange the lot so that she does not incur a tax liability. Which of the following properties can she take in trade to receive like kind tax treatment?
a) A duplex in Wichita
b) Collector coins owned by a coin dealer
c) A mortgage on a rental house in Topeka
d) A or C only
#9) Instead of doing a straight exchange with someone, assume that Flora finds a person who is willing to provide her a combination of property and cash for her vacant lot. Flora will receive $5,000 cash and a vacant lot in town valued at $10,000 (basis of $8,000). If her original lot has a fair market value of $20,0000 and a basis of $5,000, how much will Flora realize on this transaction?
10) using the information in the previous question, how much gain must Flora recognize on the exchange for income tax purposes?